8 Immediate challenges before the new RBI governor Urjit Patel

1. Redemption of FCNR (B) deposits

Urjit Patel took over as 24th governor of the Reserve Bank of India (RBI) on Sunday. However, the ceremonial scroll signing exercise, which transfers the power from a former governor to a new one will happen on Tuesday, after the central bank opens on Tuesday, following two holidays.

Here is the list of few immediate challenges that the new central bank governor will have to tackle with. For the smooth sailing of all these, he has to constantly communicate with the market and the banking sector at large. Given that the new governor is not known for his public communication exercise, he has to surely shed that practice and be more voluble in public.

The Reserve Bank of India (RBI) raised about $26 billion through these deposits in September-November 2013. Most of the deposits are getting due this year and the central bank has guided that the resultant dollar outflow (about $20 billion) could create temporary liquidity crisis in the market. Given that the central bank has build up a formidable reserve and solid long position at the forwards market, the redemption per se won’t be a problem. But there could be a short term blip, which the new governor should talk down in the market.

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